The Voluntary Employees' Beneficiary Association or VEBA is a type of welfare benefit plan to which employers make contributions to be used for future specified employee benefits. The repository of contributed funds is a trust or corporation that an employer establishes (or an employer and union set up through the process of collective bargaining).
Income from the VEBA is income tax exempt so long as it complies with the requirements of Section 501(C)(9). Employers of professional corporations or closely held businesses may want to increase the level of prefunded, tax-deferred benefits beyond levels permitted through qualified plans. Amounts placed in the trust are beyond the reach of corporate creditors. An actuary determines annual contributions needed to fund benefits on an annual basis. Contributions are deductible to the employer in the year that it makes the contribution.
|Benefits Allowed||Benefits Not Allowed|
|Pre- and Post-retirement life insurance||Savings, retirement or deferred compensation|
|Other survivor benefits||Coverage of expenses (eg. commuting)|
|Sickness and accident benefits||Accident/homeowners insurance covering property damage|
|Other benefits: vacation, recreation, severance paid through a severance pay plan, unemployment and job training benefits, disaster benefits and legal service payment for creditors.||Other items unrelated to maintaining the employee\'s earning power.|
Advantages: benefits exist for the employees' exclusive benefit in a trust beyond the reach of corporate creditors.
Disadvantages: installation and administration are both expensive and complex.
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